The Pensions Institute has criticised the “dearth” of new products combining flexibility with a guaranteed income since the launch of the pension freedoms.
A “potential crisis of provision and consumer protection within the retirement income market” is looming, the think-tank warns, exacerbated by a lack of consumers seeking advice on complex decisions.
A number of providers have either entered or considered entering the guaranteed drawdown space since the freedoms. However, they have struggled to make a success of the products, as recent exits from the market have shown.
Metlife announced in July that it would close to new wealth management business, removing itself from the unit-linked guarantees market in the UK. Aegon will also cut its guaranteed drawdown offering after selling the Irish business that reinsures it.
Old Mutual and Royal London were considering launching new products, but both have kicked these into the long grass.
Royal London had been looking to use two protection business it recently acquired, Bright Grey and Scottish Provident, to attempt to give cheaper guarantees than can currently be provided by setting up its own structured products or life assurance to underpin a product, to allay adviser concerns that guaranteed drawdown is often too expensive.
The Pensions Institute report also expresses concerns that, as some life companies move towards an asset management structure to avoid capital intensive regulation such as Solvency II, choice in the retirement space could be further limited.
The report’s author, journalist Pádraig Floyd says: “There are conflicting policy signals coming, on the one hand, from the encouragement to save for retirement via auto-enrolment and on the other, from the freedom to withdraw funds from age 55, with no obligation to secure a life-long income. As the report details, in a few years’ time there is the real prospect that there could be no private-sector providers of longevity risk cover. This will result in the state having to bail out those who outlive their pension assets and could severely damage future inter-generational solidarity.”